PER K. NARASIMHA CHARY , JM:
Aggrieved by the orde(sr) dated 21/02/2022 & 17/06/2022, passed by the National Faceless Assessment Centre (NFAC), D(foerlh ithe AY.2017-18) & Learned Assistant Commissioner o Ifn come TaxC, ircle-1, Kurnoo l(for the AY.201-819) ("LAOd".) in tShree R acyaalaseem ao Hfi Strength HypoL imited ("the asseasssesesmee"nt) y eas fr20o17r-1 8 the
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& 2018-19, under section1 43(3) r.w.s .144C(13) r.w.s. 144Bo f the Income Tax Act, 1961 (cofnsoeqrue nst toh thoer ditre cti"onts ohf Heo'b nleA ct"), Dispute Resolution PaneBl,e ngaluru ("DRaPss"es)se, efil ed these appeasl . Since the facts involved in thestwe o appeals, so also the grounds, are identical we deem it just and proper to dispose of thetwseo appeals by way of a common order, with reference to the facts in the lead case for the assessment year 201-178.
2. Brief facts of the case are that thmea in business of the assessee is manufacturing and sale of industrial chemical, trading in coal and generation of power.T hey have a captive thermal power plant of 10 MW capacityw ith the distribution system of 11 KVa pcacity and in respect of this unit the assessee claimedde duction under section 8-0IA of the Act. For the assessment year 20-1178, return of income was filed on 28/11/2017 declaring an income of R1s6. ,14,94,790-/. 3CEBre port for this year revealed that the assessee entered into specified domestic transaction with their Associated SErene terprises ("AEs"), namely, Rayalaseema Hi Strength Hypo Limited, Sree Rayalaseema Galaxy Projects Private Limited (SRGP PaLn)d TGV Projectas nd Investment Private Limited (TGVPIPL) in respect of sale of power, and Sree Rayalaseema Hi Strength Hypoi n respect of sale of steel at Rs. 8.74 per uAnsits. essee compared the transaction of sale of power with similar 11 KV connection Ts GoVf PIPL, Gouri Gopal Hospital and Service No. 8S3 RoHf HL Power Platnot state that rate per unit of the comparables was in the rangeR osf. 8.82 to Rs. 10.71 per unit as compared toR s. 8.74p er unit at whicht he captive power plant of the assessee tranfesrred power to the AEs .
3. Learned Transfer Pricing wOasf of icer ("learned TPO"), however, the opinion that the rate adopted by the assesseeR ast. 8.74 per unit includesd emand charges, energy charges, fuel chaprgeea,k hour charges, night unit charges and electricity duty and such chargheasv e to be excluded from consideration. He accordingly proposed the average energy charges at Rs. 7.39 per u naist Comparable Uncontrloeld Price (CUP) . Page2 of 9
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4. Assessee filed objectios nbefore the learned DRP and contended that its internal CUP i.e., the rate at which the n-eolnigible unit and other AEs procured power in an uncontrolled transactiforonm an unrelated entity viz. APSPDCL, was rthigeht basis for determination of Arms Length Price (ALP) .
5. Learned DRP considered tdhem and charges, calculating the same on the basis of slab rate as per thtaer iff at Rs. 7.40p er unit and holding that the other charges and duties arise due to various reasnoanms,e ly, some are collections on behalf of the Government by DISCO(fuMeSl surcharge and electricity dutys),o me arise due to large investment made in distribution and transmission assetsp ut by the DISCOM for multiple industrial customers (for example demand charges arising out of providing firm commitment of sanctioned power to industrial power unbitsy the distributing company) etc.I n asmuch as the captive power plant tohfe assessee does not incur these expenditaunred commitments, Rs. 7.39 per unit adopted by the learned TPO againRsst. 8.74 per unit adopted by the assessee, is proper .
6. Pursuant to the directions given by the Ld. DRP, the learned AssessingO fficer of the National Faceless Assessment Centre ("NFAC") passed the final assessment order on 21/2/2022 in accordance with the directions given by the Ld. DRP, but the grievance of the assessee is that while giving effect to the directions of the Ld. PD,R the learned Assessing Officer of NFAC failed to give credit to the MAT while determining the final tax liability.
7. Hence, the assessese i ni appeal before the Tribunal contending that the assessee did not claim any excess benefit under section 80IAe of th Act, and while determining theA LP in respect of the price for supply of power per unit, various charges like time of the day charges, demand and penal charges c,ustomer charges, electricity duty should have been taken into consideration to form part otfh e basic tariff itself but the authorities Page3 of 9
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erroneously excluded the same while determining the ALP. In support of their contention that if the supply of electricity by one it to other unit of the entity was made at the rate at which thEele ctricity Boardis supplying power, then it meets the ALP requirement, reliance is placed on the decisions reported in net of life sciences Ltd vs. ACIT (2022) 138 Taxmann.com 557, Star paper Mills Ltd vs. DCIT (2022t)a x1m34a nn.com 177, DCIT vs. Vishal fabrics Ltd (2)0 12329 taxmann.com 30, West Coast paper Mills Ltd vs. additional CIT (2014) 5ta2x mann.com 268 (Mumbai ITAT), CIT vs. reliance industries limited (2019) 12 Taxmann.com 372 (Bombay HC), CIT vs. Godavari power and Ispat Ltd (2014) 42 Taxmann.com 551 (Chattisgarh HC), PCIT vs. Gujarat alkylation chemicals Ltd (2017) 80 Taxmann.com 722 u(jaGrat HC), and CIT vs. Kanoria chemicals and industries Ltd (2013) 35 Taxmann.com 566 (Calcu.t ta HC)
8. Per contra, Revenue relied upon the orders of the authorities below and it is strenuously argued by the Ld. DR that the cost of production of electricity is to be compared with the cost of production of electricity by the state Electricity Boardsa nd inasmuch as the other charges and duties levied by theS tate Electricity Boaradr ise due to various reasons like the collections on behalf of theG overnmentb y this comes, fuel charge and electricity duty, large investments made in distribution and transmission assets incurred by this comes for multiple industrial customers to meet the demand charges arising out of providing firm commitment of sanctioned power to the industrial power units by the distributing company etc., which the assessee is not likely to incur, and, therefore, the authorities below are justified in excluding such charges which are incurred by the State Electricity Boarbdu t not by the assessee. It is the further argument of the Ld. DR tha tthe assessee supplied power to APSPD CRLs .a5t.45 per unit for a period oft wo months during the relevant financial year and therefore, Ld. TPO benchmarking the price per unitR as t. 7.39 is quite justified.
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9. We have gone through the record in the light of the submissions made on either side I.t is an admitted fact that the assessee has been dealing in manufacturing and sale of industrial chemicals, trading in:
generation and distribution of power and ecmh icasl to the domestic as well as international markets. The assessee also has a caphteivrme at l power plant of 10 MW capacity at Kurnool, in respect of which the deduction under section 8-0IA of the Act has been claimed by the assessee with the distribution system of 11 KV capacity. It is also not in dispute that the assessee entered into spifeic domestic transaction with its AEs, namely, Sh. Rama SeemHaig h-strength Hypo Ltd, Sh. SMR GalaPxyro jects Pvt. Ltd and ATVP rojectsa nd Investments PrivateL td in respect of sale of power.
10. Dispute in this appeal revolves around the deduction oRfs . 3,75,68,330-/claimed by the assessee under section- IA8 0of the Act in respect of the power generation through thermal sources by adopRtisn .g
8.74 per unit as ALP for supply of power to its chemical division and other AEs .It is not in dispute that the stae power distribution company charged Rs .8.98 per unit from TGVP rojecta nd Investment Private Limite,d Rs .8.82 per unit from Gauri Gopal Hospital anRds .10.71 per unit for service No. 583 of SRHHL plant un it.
11. Insofar as the assessee supplying poweRr sa .t5 .45 per unit for a period of two months till 25/06/2016 is concerned, it remains undisputed that such price was fixed in thfien ancial year2 015-16 and in respect of the surplus power generate, dbased on a sho-rtterm tender invitation by the APSPDC, Lunder the circumstances that APSPDCL is the sole monopoly in generation, procurement and distribution of power in the area and the assessee being a privaeten terprise had to supply surplus power to the State Electricity Boaradn d therefore, there was no option available to the assessee but to sell the same at the price prescribed by the APS APsD aC L. matter of fact, Ld. TPO on a consideration of the submniss mioade by the Page5 of 9
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assessee, agreed with the assesasnede recorded that the rate oRf s .5.45 cannot be controlled transactio n.
12. Now coming to the transactionit is submitted by the assessee in respect of TGVP rojectsa nd InvestmentsP vt. Ltd, Gauri Gopal Hospital and SRHHL, as comparable transactions, rate per unit charged by APSPDCL in respect of TGVPIPL Riss .8.98, in respect of Gauri Gopal Hospital itR is .
8.82 and in respect of SRHHL iRt sis .1 0.71. Basing on these 3 transaocntsi the assessee concluded that the rate per unit is abRosu .8t .82 to Rs .10.71 and, therefore, the average aRt s .8.74 per unit is taken to benchmark the transaction. Insofar as these rates are concerned, Ld. TPO does not dispute the same.A ccording to ht e Ld. TPOa, ssessee is not entitled to claim the inclusion of the TOD charges, demand charges, penal demand charges, electrical duty, customer charges and late payment charges which the state electricity board collects from the consumer, since the assee dsoses not incur any expenditure relevant to such charges being a captive power plant.
13. It is relevant to note here that the assessee does not claim late payment charges A. ccording to the assessee while adopting CUP method, the price at which the state Ecletricity Board adopted while supplying power to the assessee has to be considered instead of excluding so many charges levelled by theS tate Electricity Boardto its consumers, more particularly to the assesse. Eeven in respect of the chemical division of the assessee in question, it procured power from the thermal divisioRn sa .t
8.74 while the same chemical division procured power from the APSPDCL at Rs .10.71 per unit. Insofar as this fact is concerned, neri the Ld. TPO nor the Ld. DRP dispute the sam e.
14. Coming to the case law relied on by the assessee, in the cases of Star paper mills Ltd (supra), Vishal fabrics Ltd (supRreal)ia, nce Industries Limited (supra), GodavarPi ower and Ispat Ltd (supra), GujratA lkalis and ChemicalsL td (supra) and Kanrioa Chemicalsa nd IndustriesL td (supra) are Page6 of 9
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concerned with the supply of power generated by the captive power plants. In all these cases, and more particularly in Ntheector Lifesciences Ltd (supra), Star paper Milsl Ltd (supr)a, West Coast paper Mills Ltd (sup),r a GodavariP ower (supra), Gujrat Alkalis( supra) and KanodiCa hemicalsit is specifically held tha wt hen an assessee seutp a captive power generation plant and provided electricity to its AEs ancdla imed deduction under section 80-IA of the Act, in respect of the profits arising out of such activity, the valuation of the electricity provided to the AEs should be at rate at which the State Electricity Boardch arges for supply of electricity to the industrial consumers .
15. On the face of the admitted fact that the Ld. TPO himself conceded that the rate at which the assessee supplied the power to the APSPDCL during the financial year 201-156 at Rs. 5.45 cannot be an uncontrolled transaction, the Ld. TPOa ncnot ignore the transactioans submitted by the assessee between TGPVro jects, Gauri Gopal Hospital and SRHHL with the APSPDCL Rats .8.98, Rs .8.82 andR s .10.71 per unit cannot be ignore. dAt the same time the consistent view taken by the higher judl ifcoiara and also the Tribunal in the cases referred to by the assessee is to the effect that when the assessee had set up a captive power generating unit and provided electricity to its AEs and claimed deduction under sectio-InA 8 0 of the Act in respect opf rofits arising out of such activity, for the purpose of such deduction the market value of power supplied by the assessee to its AEs should be computed considering the rate of power charged by the State Electricity Boarfdo r supply of electricity to indutrsial consumers .
16. We, therefore, respectfully following the decisions of various Hon'ble High Courtsin the case ofR eliance Industries Limite(ds upra), GodavariP ower and Ispat Ltd (supra), GujraAtl kalis and ChemicalsL td (supra) and KanoriaC hemicalsa nd Industries Ltd (supra) are of the considered opinion that the assessee is justified in adoptingA tLhPe o f the electricity supply bites captive power generation plant to its AERss a.8 t. 74 and the Revenue is not jufsietid in excluding certain heads of charges from Page7 of 9
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out of it. With this view of the matte, rwe allow the grounds of appeal on this aspect .
17. In view of our finding in the preceding paragraphs, issues relating to the quantification of the MAT credit and interes tunder section 234B and 234C of the Act are academic in nature and need not be adjudic ated.
18. Since the facts of ITTAP N o. 351/Hyd/2022 for the assessment year 2018-19 are identical to one as decided by us in ITTPAN o. 123/Hyd/2022 (supra) for thea ssessment year 2107-18 and, therefore, our findings in the said appealm, utatis mutandis, would apply to this appeal as well. Hence, this appeal of assessee is also allow ed.
19. In the result,b oth the appeals of the assessee are allow ed. Order pronouncedn i the open court on this th e26thday of October, 2022
S d /- S d /-
(RAMA KANTA PAND A ) (K. NARASIMHA CHA RY)
ACCOUNTANT MEMB E R J UDICIAL MEMB ER
Hyderabad , Dated:2 6/10/2022
TNMM
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Copy forwarded to :
1. Sree Rayalaseema Hi Strength HLypimoi ted, 40-304, KJS Comple, x Bhagya Nagar, Kurno ol.
2. DCIT, Circ-le1, Kurnool .
3. ACIT, Circle-1, Kurnoo.l
4. NFAC, Delh i
5. The Dispute Resolution Panel (DRBPe),n galuru.
6. The Director of Income Tax (IT & TPH)y,d erabad .
7. The Addl. Commissioner of Income Tax (Transfer Pricing), Hyder abad.
8. DR, ITAT, Hyderaba d.
9. GUARD FIL E
TRUE COP Y
ASSISTANT REGIST RAR
I TAT, HYDERAB AD
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